Gregory P. Marchildon. Profits and Politics: Beaverbrook and the Gilded Age of Canadian Finance. Toronto, Buffalo, London: University of Toronto Press, 1996. xvi + 348 pp. $39.00 (cloth), ISBN 978-0-8020-0740-7.
Reviewed by Brian Tennyson (Department of History and Fine Arts, University College of Cape Breton)
Published on H-Canada (March, 1999)
Canada's Michael Milken?
The creation of the Dominion of Canada in 1867 was followed a decade later by the adoption of the so-called National Policy, the purpose of which was to develop an industrial economy that would exploit the natural resources of the northern half of the North American continent. This policy initially facilitated the expansion of existing small industrial enterprises and the creation of many new ones. As Canada's need for investment capital grew exponentially, especially in the boom years from 1896 to 1913, financiers began merging smaller companies into larger organizations in order to take advantage of advancing technology which enabled fewer factories to produce more goods more efficiently, while at the same time exploiting the tariff wall which provided them with a largely captive, if relatively modest, market.
Unquestionably the most prominent of these financiers in the Laurier era was Max Aitken, who emerged as one of the foremost financiers of his generation and the country's most prominent merger promoter. Between 1909 and 1913 almost two hundred companies were consolidated into fifty; Aitken, having founded Royal Securities Corporation as his investment bank, was responsible for collapsing some twenty companies into three enormous enterprises (Canada Cement, Canadian Car and Foundry, and the Steel Company of Canada). He then, at the tender age of 31, moved to Britain where he continued his colourful and controversial career as a newspaper baron, politician, and intimate of the rich and powerful, becoming the first Lord Beaverbrook along the way. The conventional wisdom is that he fled to Britain with his millions in profits to avoid investigation or even prosecution, "scoundrel and a crook who betrayed business associates and robbed the treasuries of the companies he had helped create (p. 4)."
This vastly interesting book examines the nature of the finance capitalism that evolved during the Laurier era and seeks to ascertain Aitken's place in it. It provides the first detailed and relatively clear explanations of the manipulations involved in Aitken's mergers, including a brilliant elucidation of the Canada Cement merger that concludes that Aitken's profit was "only" about $600,000, admittedly a huge sum at the time but dramatically less than the $20 million claimed by the stunned and battered Sir Sandford Fleming, the elderly Montreal financier who made the mistake of getting in Aitken's way.
Marchildon argues that investors (with a few notable exceptions such as Fleming) did not suffer as a result of Aitken's mergers. Indeed, although he was "undeniably guilty" of stock watering (i.e. issuing securities whose face value exceeded the underlying value of the properties entering the merger) this was common practice at the time and Aitken engaged in "significantly less" stock watering in the case of Canada Cement "than the average merger of the period." Further, economies of scale based on new high-throughput technologies were central to Aitken's industrial mergers and "all his consolidations performed better than the typical industrial merger created during the Laurier boom (p. 5)." The organizations which he created "were money-making machines because they were innovative and purposeful organizations that harnessed individual and institutional strengths. By funnelling large amounts of capital to existing companies, these organizations added real value to the Canadian economy (p. x)." Of his three great mergers, two were eventually purchased as going concerns by foreign multinationals and one (the Steel Company of Canada) is today the largest steel company in Canada. Royal Securities "became the most dynamic investment bank in the country during the Laurier boom, and would remain a distinctive feature of the country's financial landscape until its acquisition by Merrill Lynch in 1969." Along the way, it served as the "training camp for Canadian high financiers in the twentieth century," producing Arthur Nesbitt, Ward Pitfield and Walton Killam (p. 244).
Despite this apparently stirling record, Marchildon compares Aitken to the infamous Michael Milken, the so-called American junk bond king of the 1980s. "Both were young and pushy intruders in their respective financial establishments, both concentrated on promoting companies in the leading sector industries of their age, and both used high-risk methods to finance these companies. Mergers and acquisitions were a key part of their respective strategies to raise new capital, and they both raked in millions of dollars in profit, often in the form of the very high-risk securities that their businesses depended on. In the end, both became symbols of the financial excesses of their respective eras and were scorned by the general public (p. 6)." Unlike Milken, however, Aitken was never convicted for infractions of securities regulations, although (as Marchildon concedes) this was largely because of the general absence of such regulations.
Marchildon attributes Aitken's success to his astute grasp of financial issues combined with his ruthless determination to succeed, combined with his ability to attract extremely talented individuals as associates and employees. Perhaps too it was because Aitken was a charismatic manipulator of men whose goal in life was not merely to become rich, but "to attain the power necessary to lead a riveting life, one full of adventure and novelty, and the means to this end were profit and, to a lesser extent, politics (p. x)."
This is an extremely useful and uncommonly interesting book which explains much about the workings of the Canadian financial system in the two decades prior to the First World War. Despite its title, it does not in fact tell us much the interplay of the financial system with Canadian politics. One wonders, for example, about the government's response to the sorts of things that Aitken was doing, particularly in view of growing popular protest against what were perceived as obscene unearned profits by financiers. Certainly, anti-trust legislation was passed but to what effect? Marchildon offers only two pages of very general discussion on this important topic. As well, despite his declared intention to explain the close connection between Canadian financial activities and the movement for closer imperial cooperation, he does not develop this theme. The author does seem exceptionally generous and sympathetic in his treatment of Aitken, a bias which seems surprising in view of the fact that he is a deputy minister in the New Democrat government of Saskatchewan. Nevertheless, he argues his case well, providing both detailed information and clarification where hitherto there has been too much bias in the other direction. This book is essential reading not only for those interested in Aitken's controversial career but for anyone interested in the Laurier era or Canadian economic history generally.
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Brian Tennyson. Review of Marchildon, Gregory P., Profits and Politics: Beaverbrook and the Gilded Age of Canadian Finance.
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